9911796707
TMI Blog1997 (11) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas Sulphuric Acid is manufactured by them and captively utilised claiming exemption from duty under Notification No. 217/86, dated 2-4-1986 and/or 67/95, dated 16-3-1995. They started availing the Modvat credit of duty paid on C.S. Lye used in the manufacture of Sodium Sulphate right from April, 1986. Since their main product VSF was not specified as a final product under Notification No. 177/86, they were apportioning the Modvat credit of duty paid on C.S. Lye and were taking credit in their RG 23A, Part-II only to the extent of quantity actually used in the manufacture of Sodium Sulphate based on the consumption ratio of C.S. Lye for the production of one M.T. of Sodium Sulphate which is 563 Kgs. PMT of Sodium Sulphate given as per their letter No. CX-86-87: 355, dated 5-4-1986 and were using the same for payment of duty on Sodium Sulphate only. However, as per the Belgaum Collectorate's Trade Notice No. 76/90, dated 13-6-1990, they started taking entire Modvat credit on Caustic Soda used in the manufacture of Sodium Sulphate and VSF in their RG 23A, Pt-II of Sodium Sulphate and utilised the same for payment of duty on Sodium Sulphate. From 25-7-1991, the Modvat scheme was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that a portion of the Caustic Soda Lye utilised was attributable to the manufacture of Sodium Sulphate. 4. Rule 57D(1) of Central Excise Rules, 1944 reads as under :- "Rule 57D. Credit of duty not to be denied or varied in certain circumstances. - (1) Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product, (or that the inputs have become waste in or in relation to the manufacture of the final product) whether or not such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not specified as a final product under Rule 57A." 5. The Ld. lower authority has held that since Sodium Sulphate by itself was a finished product and this also stood notified under Rule 57A under Notification No. 177/86, as above, the Modvat credit had to be apportioned product-wise based on the quantum of inputs used for the manufacture of Sodium Sulphate and VSF separately and utilisation of the same was to be done product-wise accordingly. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice No. 76/90, dated 13-6-1990 and when VSF was not specified as a final product under Notification No. 177/86." 7. The ld. Advocate for the appellants has pleaded that the appellants manufactured VSF and Caustic Soda Lye is the major input for manufacture of the same and has pleaded that when the Modvat scheme was introduced i.e. up to 25-7-1991, VSF was not one of the notified finished products. He has pleaded in the course of manufacture of VSF, the Caustic Soda Lye reacts with other materials and Sodium Sulphate emerged as one of the products. The Sodium Sulphate as emerged could not be discharged out of the factory on account of requirements of the Pollution Control Board. The same was therefore crystallized and emerged as a by-product. He has pleaded before the VSF was cleared on payment of duty and prior to the inclusion of VSF as a notified finished product for Modvat purposes, the appellants were allowed to utilised the Modvat credit in respect of Caustic Soda Lye for payment of duty on Sodium Sulphate which was cleared from the factory and proportionate credit attributable for its manufacture was allowed by the Board. Thus, he pleaded, the limited amount of Modvat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal failed to appreciate that the provisions of Rule 56A and notification No. 201/79 were in para materia. It appears to us that the provisions of Rule 56A and the notification No. 201/79 are identical. The relevant provisions of Rule 56A are as follows : "56A(1) ... ... .... 56A(2) The Collector may, on application made in this behalf and subject to the conditions mentioned in sub-rule (3) and such other conditions as may, from time to time, be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under sub-rule (1) to receive material component parts of finished product (like Asbestos Cement), on which the duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as the countervailing duty), has been paid in his factory for the manufacture of these goods or for the more convenient distribution of finished product and allow a credit of the duty already paid on such material or component parts or finished product, as the case may be : Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not mentioned in the declaration referred to in the Appendix to this notification." 19. Central Board of Excise & Customs issued Circular No. 6/81-CX.6, dated 31-1-1981, which reads as follows: "Central Excise-Rule 56A-Proforma Credit of duty paid on material/component parts contained in waste, refuse or by-product arising during the process of manufacture -regarding. A doubt has been raised whether proforma credit of duty paid on material/component parts used in manufacture of the finished excisable goods notified under Rule 56A of the Central Excise Rules, 1944, is to be denied to the extent such material or component parts are contained in any waste, refuse or by-product arising during the process of manufacture of the notified finished excisable goods on the grounds that such waste, refuse or by product is either fully exempt from duty or not notified under sub-rule (1) of Rule 56A. 2. Since the Government's intention has been not to deny the benefit of proforma credit in such situation, an Explanation has been added to sub-rule (2) of Rule 56A, so as to remove the ambiguity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... methanol but in the production of polyester fibre. That position is undisputed. Therefore, it appears that the Tribunal erred when it held that the appellants were not entitled to a part of the credit of duty since ethylene glycol when it interacts with DMT also gives rise to methanol. This construction would frustrate the object of exemption if something which evidently arises out of the interaction. Even prior to amendment to notification No. 201/79 with effect from 11-4-1987, the only situation where the credit of the duty paid on the inputs could be denied was only where the final products were wholly exempt from the duty of excise or chargeable to nil rate of duty. In the present case, the excisable goods, namely, polyester fibre were not wholly exempt from duty nor chargeable to nil rate of duty. It cannot be read in the notification that the notification would not be available in case non-excisable goods arise during the course of manufacture. In fact, the Tribunal seems to have erred in not bearing in mind that exemption notification was pressed in service in respect of polyester fibre which is excisable goods and not in respect of methanol which arises as a by-product as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants were allowed to utilise the apportionment of the Modvat credit on Caustic Soda Lye which was based on the quantum of Caustic Soda Lye relatable to the manufacture of Sodium Sulphate. He has pleaded after the VSF was notified, there was no reason why this apportionment done earlier should not be continued to be done. 15. In regard to the judgments cited supra, he pleaded that all these judgments related to the admissibility of the Modvat credit and not utilisation of the same. 16. In this connection, he referred us to the Show Cause Notice dated 16-8-1993 wherein it has been clearly mentioned that since it appeared that Sodium Sulphate was specified as a final product under Rule 57A read with Notification No. 177/86 as amended, the provisions of Rule 57D(1) would not be applicable. It was also mentioned that for the said Sodium Sulphate they were availing the Modvat facility and also they had filed a separate declaration under Rule 57G and it was alleged therefore that the appellants wrongly availed of the entire Modvat credit for payment of duty on VSF. 17. He has pleaded that since the goods obtained as Sodium Sulphate and VSF as final products, same the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under Section 4 of the Act; (iv) cylinders for packing gases; (v) plywood for tea chests; or. (vi) bags or sacks made out of fabrics (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics. Rule 57D. Credit of duty not to be denied or varied in certain circumstances. - (1) Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product, whether or not such waste, refuse or by-product is exempt from the whole of the duty of excise leviab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for export under bond or used in the intermediate products cleared for export in accordance with sub-rule (2), shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette : Provided further that no such refund of credit of duty shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971, or claims rebate of duty under Rule 12A, in respect of such duty : Provided also that the credit of specified duty in respect of inputs used in the final products cleared either to a unit in a Free Trade Zone or to a hundred per cent. Export-Oriented Unit under bond shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption on payment of duty." 19. A reading of the Rule 57A shows that the benefit is available in respect of notified inputs which are used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odium Sulphate is a by-product therefore could be accepted and we need not examine the manufacturing process whether the same could be considered as by-product or not and that the item is a "by-product" has also not been disputed by the Revenue. 23. The question therefore arises that once an item has been identified to be a by-product whether in that event by reason of that product being itself also excisable goods notified under Rule 57A and being cleared from the assessee's factory Modvat credit taken in respect of the inputs could be varied or denied for any portion which may be relatable to the by-product arising during the course of manufacture of the final product. There is no denial from the Revenue that the appellants' final product is VSF. However, the plea has been made that Sodium Sulphate is also a final product and therefore Modvat credit on the inputs has to be apportioned between the two products based on the quantum required for producing each of the items. 24. We observe that the legislature in this regard has introduced Rule 57D(1) and conscious decision has been taken that full Modvat credit available for the inputs which are used in or in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier the Modvat credit was allowed to be taken and utilised in respect of Sodium Sulphate it was at the time when utilisation of the Modvat credit on VSF was not contemplated as VSF was not specified under Rule 57D. 26. The moment VSF was notified as a specified final product, under Rule 57A, the rules will have to be interpreted with reference to their product and the benefit of the Modvat credit will have to be considered in the context of appellants' manufacturing the VSF and the status of the Sodium Sulphate produced has to be reckoned with reference to the manufacture of VSF. Admittedly, the same is only a by-product. That benefit of Modvat credit was given to the by-product earlier in no way affects the appellants' right to claim the full benefit and utilisation of the Modvat credit on the inputs when VSF came to be notified. 27. In view of the above, we hold that the appellants' plea for the benefit of Modvat credit has to be allowed. The ld. Lower Authority's orders are therefore set aside and appeals of the appellants are allowed. 28. Inasmuch as we have allowed the plea of the appellants, the department appeals automatically based on the ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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